Business Approaches

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Having established that these countries were indeed participating in international e-commerce, the next phase of the web survey was an effort to characterize the kinds of businesses and products that were being presented via the web. Recent discussions of e-commerce have indicated that the label is so large it fits many disparate businesses and products.

Classifications of products and services being sold on the Internet have been attempted by a number of researchers. Kiang and Chi (2001) establish three categories of on-line commercial activities: exchanging information between the buyer and seller, generating sales of tangible products, and exchanging digital products and services. In their subsequent review of failed e-tailers, they found that companies using e-commerce to sell tangible products failed twice as commonly as e-tailers selling digital products.

A recent profitability summary of publicly traded American companies puts products into two large categories — digital products/services and tangible products — and finds the digital products (online travel, software, financial services) are generating significant profits (after very significant start-up costs), while retailers trying to sell tangible goods are having a much more difficult time. According to this report the Expedia travel site was enjoying 70% gross profit margins, while book retailer Amazon.com was barely making 26% on its sales (Mullaney, 2002).

It was determined to use this digital/tangible split as a way of characterizing the products and services being presented on the web sites of the companies being reviewed. The product distribution found is shown on the following page.

The industry that appears to have taken the lead in these countries is tourism. Included in this category are hotels, travel agents, guide services, and outfitters. Nepal has the Himalayas and Tanzania the Serengeti and Kilimanjaro, so it should not be too surprising that they have many tourism businesses connected to these world-renowned sites. But Nicaragua, Ghana, Mozambique, Senegal, and Kenya also had a substantial majority of their web sites connected to the tourism industry, so this trend appears to extend beyond countries with unique destinations.

	Digital Products/Services	Tangible Products
Ghana	6	1
Kenya	53	7
Mozambique	11	0
Nepal	167	62
Nicaragua	35	9
Pakistan	54	98
Senegal	5	0
Sudan	0	0
Tanzania	85	1

The limited amount of business theory developed about e-commerce would support the level of activity we find in seven countries' tourism industries. Kiang and Chi (2001) point out that one of the unique features of Internet marketing can be its use as both a transaction medium and a distribution medium for digital products and services. Online ticketing and reservations are a classic example of this feature in that customers can learn about products, make a purchase, and receive a digital plane ticket or hotel/resort reservation. The Internet seems ideal for this kind of business and the fact that the majority of business being performed in these developing countries was of this type confirms that real business experience seems to be matching business theory.

On the other hand, current theory would predict problems for the many businesses in these countries that are trying to use the Internet as a means of selling tangible products. Already mentioned is the problem remote countries face when trying to ship products — they are a very long distance from any substantial market and so huge delivery obstacles and costs occur. But electronic commerce adds additional problems. Lack of trust in Internet security is frequently named as a problem in the literature (Farhoomand, 2000; Bingi, 2000). Small companies operating in distant countries would seem to be even more a risk to consumers — can they trust companies they have never heard of in countries they can barely find on a map?

But the products being selected for export seem even more problematic. Rangan and Adler (2001) placed tangible products into four categories — undifferentiated commodities (steel bars or a barrel of oil are the same anywhere you buy them), quasi-commodities (branded books or toys available from many sources), "look and feel" goods (houses, clothing, furniture), and "look and feel" goods of varying quality (artwork, wine). In the first two categories price is paramount and foreign companies with significant price advantages could see success. The two "look and feel" categories are much more difficult to sell over the Internet since buyers want to sit in the chair, try on the sweater, or taste a sample of the wine. None of these are possible online, so e-tailers attempting to sell such products have real problems finding customers.

Unfortunately for the businesses in the nine countries tracked, most are attempting to sell the classic "look and feel" products online. In Nepal it is Pashmina sweaters. In Nicaragua it is cigars and rum. Pakistan exports clothing and rugs. Kenya advertises African art work. All these products vary considerably in quality, in size, and in color.... Each would be difficult for experienced vendors with well-establish reputations and simple return policies to sell. They are going to be extraordinarily difficult sales for distant companies with unknown names. Growing experience with online sales is beginning to suggest strategies companies can take to successfully sell "look and feel" products, but these strategies take significant business sophistication (for example, "relationship marketing" (Shin, 2001)) and still leave the companies of Nepal facing the basic task of shipping a Pashmina sweater to Oregon and accepting a return if the size or color are wrong, and doing so at an attractive price while earning a profit. Such a task is daunting in any country and with any level of technological infrastructure.

The other problem with the product category chosen most often by these exporters is the low profits such products generate. In their study of twelve emerging multinational companies, Bartlett and Ghoshal (2000) identified each company's products by market segment and placement on what they termed the "value curve." They noted, "the problem for most aspiring multinationals from peripheral countries is that they typically enter the global marketplace at the bottom of the value curve - and they stay there." By this they mean companies export low profit commodity — like products rather than more profitable branded products. Persaud (2001) refers to this as the "commodities trap," and points out that the Internet puts additional pressure on commodities sellers since buyers can go to a host of cybermarkets and post a bid for a graded commodity, thus putting pressure on seller's profit margins. If the sweaters, cigars, clothing and rugs being sold are not differentiated from endless competitors, they can be treated as commodities — and priced accordingly. Yet asking a small company in a developing country to develop an international brand for its product so it can move up the value curve seems impossible.

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